Regional Roundup. June 2021 - Westpac
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Regional Roundup. June 2021
Contents.
Summary 03
12 month regional outlook 04
Auckland 05
Bay of Plenty 06
Canterbury 07
Gisborne/Hawke's Bay 08
Nelson/Marlborough/West Coast 09
Northland 10
Otago 11
Southland 12
Taranaki/Manawatu-Whanganui 13
Waikato 14
Wellington 15
Contributing authors.
Paul Clark, Industry Economist
+64 9 336 5656
Michael Gordon, Acting Chief Economist
+64 9 336 5670
02 | June 2021 Regional Roundup
Summary.
New Zealand’s recovery is gaining traction and we expect it will continue to strengthen over the
year ahead. Rural regions are currently leading the way, although our larger metropolitan areas
are likely to gradually close the performance gap. Regions that rely on foreign visitor arrivals will
continue to lag.
Accelerating construction activity and rampant house prices restate operators. In the case of Wellington, the key driver has
have been key features of New Zealand’s economic recovery been an expanding public sector, boosted by a Government
and that is being reflected at a regional level. Indeed, building with a more hands-on approach to the economy.
consents have skyrocketed in the past year, in some cases
to record highs, as developers seeking favourable returns Many rural regions have hardly felt the loss of visitor arrivals
have piled in. While all regions have benefitted, the real from abroad. Of course, that’s not true for all regions. Our big
standouts have been in the upper and central North Island, metropolitan regions have been affected, although given the
and Southland. mix of activities that occur in Auckland and Wellington, the
impacts have been less muted than for Otago, Southland, and
The rampant housing market has also been a key feature of the West Coast. These regions have and continue to feel the
regional economic recovery, with record prices the order of brunt of the border closures, despite the recent opening of
the day. The biggest gains have been in the rural regions in the travel bubble with Australia.
the North Island, with Gisborne/Hawke’s Bay and Taranaki/
Whanganui-Manawatu being the standouts. House prices Looking forward, we think that recently announced changes
in Auckland and Wellington have also shot the lights out, to the tax treatment of property investments will result in a
while those in Canterbury, having previously lagged their cooling of the housing market in many regions. That’s likely
metropolitan counterparts, have now built a full head to slow the recovery in consumer spending. The possible
of steam. exceptions could be Canterbury and Otago, where gains have
not been as strong as elsewhere, and where price valuations
are not overly stretched.
Figure 1: Residential building consents - annual
Number (000) Number (000) Construction activity though is likely to remain strong across
20 20
Upper North Island
most regions, given already full pipelines and still attractive
18 18
Central North Island returns to investors.
16 16
Canterbury
14 14
South Island (ex Canterbury) Regions with a large rural backbone are still well set for the
12 12
Auckland year ahead, with commodity prices expected to remain high in
10 10
coming months as the global economy continues to expand.
8 8
Metropolitan regions though will close the gap. Indeed, a hot
6 6
construction sector is likely to spell better times ahead for
4 4
manufacturers in Auckland, the Waikato and Canterbury, who
2 2
Source: Stats NZ, Westpac are also likely to be buoyed by stronger economic growth in key
0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 export markets. That in turn is likely to give the services sector
a boost and support employment in these major centres.
Regions with a rural backbone continue to be the strongest However, regions that rely on foreign tourism will continue
performing regions. That includes the Bay of Plenty, Gisborne/ to lag. Indeed, we expect that they will only start recovering
Hawke’s Bay, Taranaki/Whanganui-Manawatu, and Northland. properly once the borders are opened to visitor arrivals from
All have benefitted from higher or elevated commodity prices. countries other than Australia. Given the pace of Covid-19
That said, weather issues and labour shortages have been a vaccinations, both at home and abroad, that is likely to be
drag on agriculture and horticultural production. some time off.
Metropolitan regions are catching up, with economic activity Boiling this complicated picture down to a single outlook
becoming increasingly broad-based. Manufacturing in for each region gives us the picture overleaf. The outlook
Auckland, Christchurch and Hamilton has really picked up. continues to be generally weaker for the southern part of the
The construction boom has helped in this regard. So too South Island, while for the middle and top of the North Island,
exports underpinned by stronger economic growth in key it is likely to be stronger. Some of the biggest gains, however,
markets. That in turn has driven activity in the services sector, are likely to be seen in the large urban centres of Auckland
with the red-hot housing market proving a boon for real and Canterbury.
03 | June 2021 Regional Roundup12 month regional outlook.
These shaded maps provide a summary of current and future economic growth by region over the next year.
Current situation Next 12 months
STRONG STRONG
WEAK WEAK
04 | June 2021 Regional RoundupAuckland.
Current situation. other countries still undetermined, the return to heady pre-
Covid-19 days remains a long-way off.
Economic activity in Auckland is building momentum.
A general improvement in economic conditions within the
In part that’s because residential construction activity in the region is likely to translate into more demand for labour. That
region is running hot. Supported by low interest rates and in turn should help support spending in the region, although
strong house price gains, building consents, particularly for gains here are likely to be pared by a softer housing market.
higher density homes such as townhouses and flats, have
ramped up and are currently at levels last seen in the 1970s.
Figure 1: Residential building consents
Increasing construction activity has also helped to boost Number Number
manufacturing in the region. Manufacturers are reporting 6,000 6,000
strong trading activity and order books are filling up
5,000 5,000
fast. Exports have also been a key driver of activity with
manufacturers benefitting from stronger economic growth in 4,000 4,000
key markets.
3,000 3,000
A booming construction sector and growth in manufacturing
2,000 2,000
has meant more demand for labour and business services
within the region. Real estate services have benefitted from 1,000 1,000
stronger housing market activity. Source: Stats NZ
0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Meanwhile, the region’s housing market is powering ahead.
House prices have accelerated to record levels over the past
six months as leveraged investors, accounting for about Figure 2: PMI/PSI - Northern
one-third of sales, have sought yield in a historically low
interest environment. Index Index
70 70
A stronger economic performance has supported spending in 60 60
the region, which in turn has given retailers a bit of a boost.
Card spending remains slightly lower than pre-Covid-19 levels 50 50
despite Aucklanders having spent large with offshore holidays
40 40
effectively off limits.
30 PMI - Northern PSI - Northern 30
Outlook. 20 20
Source: Business New Zealand
We expect Auckland’s economic recovery to continue 10 10
strengthening over the coming year. 2017 2018 2019 2020 2021
Residential construction activity is underpinning the outlook,
with a huge amount of work in the pipeline. Figure 3: House prices and sales volumes
Number Monthly % change
Manufacturing will also continue to benefit from the expected 5,000 5
ramp up in construction activity. Exporting manufacturers 4,000 4
Prices (RHS) Sales (LHS)
are also well positioned to take advantage of improving
global economic fortunes and the eventual normalisation of 3,000 3
supply chains. 2,000 2
1,000 1
In time, we expect house prices in Auckland to stabilise
given recently announced changes to the tax treatment of 0 0
investment properties.
-1,000 -1
Source: REINZ, Westpac
The region should continue to see increased visitor arrivals -2,000 -2
2017 2018 2019 2020 2021
from Australia come summer. Auckland is one of the few
regions in New Zealand that stands to benefit from the
recently formed travel bubble with that country. That said,
with the lifting of border restrictions on visitor arrivals from
05 | June 2021 Regional RoundupBay of Plenty.
Current situation. In time, we expect house prices in the Bay of Plenty will
stabilise given recent changes to the tax treatment of
The Bay of Plenty’s economy continues to perform strongly, investment property.
with major contributions coming from horticulture, forestry,
and construction. By contrast, residential construction activity should remain
elevated for much of the next year. In large part that’s
Indeed, residential building activity in the region is growing because of attractive developer returns, which are likely
fast with approved consent applications having accelerated to underpinned by elevated house prices and still very low
strongly over the past six months. interest rates.
The horticultural sector is also performing well with export Raised activity should continue to underpin a further
volumes of kiwifruit reflecting the impact of earlier plantings. improvement in labour market conditions. That should feed
With prices remaining elevated, export receipts for kiwifruit into consumer spending, although growth in this regard
have reached record highs. is likely to be weighed down by the impact of a weaker
housing market.
Similarly, forestry owners in the Bay of Plenty continue to
benefit from strong demand in China for logs and higher
export prices. Log prices have jumped 20% over the past Figure 1: Residential building consents
six months. Number Number
900 900
Meanwhile, house prices, underpinned by record low interest 800 800
rates, have accelerated to new highs. Sales volumes have 700 700
stabilised at around pre-Covid-19 levels. 600 600
500 500
A booming local economy will have contributed to stronger
400 400
demand for labour, and to lower unemployment. On that
300 300
front, news that the Whakatane Mill, a major packaging plant
200 200
in the region, has secured a buyer will have come as a relief to
the 200 or so workers that stood lose their jobs. Not so good 100 100
Source: Stats NZ
was confirmation that Norske Skog’s Tasman pulp and paper 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
mill at Kawerau will close with the loss of 160 jobs.
A strong economic performance has supported spending Figure 2: House prices and sales volumes
in the region, which in turn has given retailers a bit of a
boost. However, card spending has not yet got back to pre- Number Monthly % change
700 7
Covid-19 levels. Prices (RHS) Sales (LHS)
600 6
500 5
Outlook. 400 4
300 3
We expect the Bay of Plenty will continue to perform 200 2
strongly over the coming year. Gains though are likely to slow 100 1
compared to 2020. 0 0
-100 -1
Indeed, growers of horticultural products in this major -200 -2
growing region should continue to benefit from a larger -300
Source: REINZ
-3
kiwifruit harvest and strengthening demand in export 2017 2018 2019 2020 2021
markets. Prices are likely to remain healthy, albeit slightly
down on 2020 levels. On an overall basis that should translate
into elevated incomes for the region’s orchardists.
The outlook for the region’s forestry sector remains positive
with a fast-growing Chinese economy expected to underpin
export strength out of the region over the coming year. Log
prices could get a further leg up from a drop in transport
costs over the coming year once capacity shortages in
shipping are resolved and supply chains begin to normalise.
06 | June 2021 Regional RoundupCanterbury.
Current situation. Service sector activity should continue to benefit from
conducive conditions in the manufacturing and construction
Economic activity in Canterbury continues to improve and is sectors over the coming year. However, the closure of the
also becoming more broad-based. borders to all foreign tourists (except Australians) should keep
a lid on activity in the region’s hospitality sector.
First up, the region’s farmers will have been buoyed by a 25%
increase in the milk price since the beginning of the year, Meanwhile, house prices in the region should stabilise given
as well as the recent turnaround in meat prices. However, recent changes to the tax treatment of investment properties.
widespread recent flooding in the region will have dampened However, house prices in Canterbury may prove more resilient
the mood. because of relative price differentials with other metropolitan
regions, and valuations that don’t appear to be stretched.
Residential construction activity has also picked up, reflecting
an increase in building consents. With average consent
times exceeding the 20-working day statutory time frame, Figure 1: PMI/PSI
indications are that the pipeline of work in the region is Index Index
getting bigger. 70 65
65 60
That’s helped to support manufacturing activity in the 60 55
region, with many firms reporting increased trading activity 55
50
and filled order books. Exports have also been a key driver 50
45
of manufacturing in the region with firms benefitting from 45
40
stronger economic growth in key markets. 40 PMI
35
35 PSI - Canterbury/Westland
30
Consumer spending though remains well off pre-Covid-19 30
levels. That partly reflects the impact of a lack of foreign 25 25
Source: Business New Zealand
visitors during the summer period, with Canterbury 20 20
2017 2018 2019 2020 2021
often acting as a gateway to other regions, as well as
unemployment in associated industries, such as hospitality,
which continues to edge higher. Figure 2: Residential building consents
Meanwhile, house prices, initially off to a slow start, have Number Number
2,500 2,500
accelerated strongly in recent quarters. In contrast to
other regions, price gains in Canterbury are growing at an
2,000 2,000
increasingly faster pace, with sales volumes still well above
pre-Covid-19 levels.
1,500 1,500
Outlook. 1,000 1,000
Canterbury’s economic recovery is well set and should gather 500 500
pace over the coming year. That should help it close the gap
Source: Stats NZ
on other regions. 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Indeed, the region’s sheep, beef and dairy farmers stand to
benefit from rising farmgate prices. Prime meat prices are
set to accelerate over the course of the year as the Covid-19 Figure 3: House prices and sales volumes
vaccine rollout gathers pace in the US, Europe and the UK, and Number Monthly % change
people head back to the restaurants. 1,500 5.0
1,200 4.0
With a growing pipeline of work, residential construction 900 3.0
activity is expected to be strong over the coming year. A ramp 600 2.0
up in consents in the past year mostly reflects attractive
300 1.0
developer returns, which have been underpinned by elevated
0 0.0
house prices and very low interest rates.
-300 -1.0
In turn, manufacturing should benefit from elevated -600 Prices (RHS) Sales (LHS) -2.0
construction activity. Exporting manufacturers are also well -900
Source: REINZ, Westpac
-3.0
positioned to take advantage of an improvement in global -1,200 -4.0
2017 2018 2019 2020 2021
economic fortunes and the normalisation of supply chains.
07 | June 2021 Regional RoundupGisborne/Hawke’s Bay.
Current situation. The outlook for the region’s big forestry sector remains
positive with a fast-growing Chinese economy expected to be
This region’s economy has been performing strongly mainly the key driver of log exports out of the region over the coming
because of the performance of primary industry in the region year. Log prices could get a further leg up from a drop in
and increased construction activity. transport costs over the coming year once capacity shortages
in shipping are resolved and supply chains normalise.
Indeed, residential construction activity in the region is
running hot. Supported by low interest rates and strong Meanwhile, house prices in the region are expected to
house price gains, building consents are currently running at stabilise over the coming year given recent changes to the tax
record levels. treatment of investment properties.
For farmers and growers, it’s been a tough start to the year, A strong economic performance is likely to underpin an
with the region affected by drought conditions and labour improvement in labour market conditions. A further fall in
shortages in some areas. That said, the region’s farmers will unemployment should feed into more spending, although the
have been buoyed by a recent turnaround in sheep and beef pace of growth is likely to be pared by an expected flattening
prices, which have benefitted from growing demand in key of housing prices.
export markets.
Orchardists too have seen relatively healthy prices for apples, Figure 1: Residential building consents
albeit slightly down on last year. The size of the crop is also Number Number
significantly lower with fruit being left to rot because of labour 350 350
shortages. Meanwhile, forestry owners in the region continue 300 300
to benefit from strong export prices. Log prices have jumped
20% over the past six months. 250 250
200 200
A rampant housing market has also contributed to the
150 150
booming local economy, having outperformed all others.
However, after continuing to grow at breakneck speed, prices 100 100
dipped slightly in May.
50 50
Source: Stats NZ
A strong economic performance has contributed to a pickup 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
in demand for labour and falling unemployment in the region.
That in turn has contributed to more consumer spending, with
retail sales significantly up on the same time last year. Figure 2: House prices and sales volumes
Number Monthly % change
Outlook. 525 7
450 Prices (RHS) Sales (LHS) 6
We expect the Gisborne/Hawke’s Bay economy to perform
375 5
strongly over the coming year. Indeed, we expect the region
300 4
will continue to be one of the top performing regions in
225 3
New Zealand.
150 2
A big part of that is likely to be because of residential 75 1
construction activity, which is expected to grow strongly over 0 0
the coming year given the amount of work in the pipeline. -75 -1
Source: REINZ, Westpac
-150 -2
The region’s meat farmers also stand to benefit from higher 2017 2018 2019 2020 2021
farmgate prices. Prime meat prices are set to accelerate over
the course of the year as the Covid-19 vaccine rollout gathers
pace in the US, Europe and the UK, and people head back
to the restaurants. Farm incomes are, however, likely to be
affected by the lingering effects of the recent drought.
That said, the region’s apple growers are likely to see lower
incomes over the coming year because of a smaller apple crop
and flat to falling prices.
08 | June 2021 Regional RoundupNelson/Marlborough/West Coast.
Current situation. The region’s grape growers and winemakers are also likely
to face some challenging times over the coming year. While
Economic activity at the top of the South has been solid rather strengthening demand should translate into higher prices, a
than spectacular, mainly because of a mixed performance significantly smaller harvest is likely to mean less income for
from its primary industry. grape growers and winemakers in the region.
Orchardists have continued to benefit from relatively healthy Firming activity levels are likely to result in more job
prices for apples. However, the size of the crop has been vacancies. That should mean increased employment,
significantly lower than in the past with fruit being left to rot more spending, and improved operating conditions for the
because of labour shortages. Meanwhile, forestry owners in region’s retailers.
the region continue to benefit from strengthening demand in
China for logs and higher export prices.
Figure 1: House prices and sales volumes
Not so good are conditions facing viticulture in the region, Number Monthly % change
with severe frost in the spring of 2020 contributing to a much 160 4
smaller grape harvest in 2021. Despite being of a high quality, Prices (RHS) Sales (LHS)
120 3
this is likely to have adversely affected the income of both
grape growers and winemakers in this major producing region. 80 2
40 1
That said, residential construction activity remains relatively
0 0
buoyant, with approved consents at healthy levels. They are,
however, well off pre-Covid-19 highs and seem to be tracking -40 -1
lower over time.
-80 -2
Source: REINZ, Westpac
Meanwhile, house prices, underpinned by record low interest -120 -3
2017 2018 2019 2020 2021
rates, have accelerated in recent months to new record highs.
That said, while monthly price gains have been very strong,
sales have ratcheted down recently. Figure 2: Residential building consents
Firm economic activity is likely to have contributed to a pickup Number Number
400 400
in demand for labour. That should have translated into more
spending. We suspect the sharp fall in retail sales over recent 350 350
quarters reflects the fact that there have been fewer people 300 300
picking fruit in the region. 250 250
200 200
Outlook. 150 150
On balance, we expect economic activity in this region to 100 100
continue firming over the coming year. 50 50
Source: Stats NZ
0 0
Indeed, the outlook for the region’s forestry sector remains 2013 2014 2015 2016 2017 2018 2019 2020 2021
positive with a fast-growing Chinese economy expected to be
the key driver of log exports out of the region over the coming
year. Log prices could get a further leg up from a drop in Figure 3: Retail sales
transport costs over the coming year once capacity shortages APC APC
in shipping are resolved and supply chains normalise. 10 10
5 5
Residential construction activity should also be relatively
buoyant, given the amount of work still in the pipeline. 0 0
Meanwhile, house prices in the region are expected to -5 -5
stabilise over coming quarters given recent changes to the tax
-10 -10
treatment of investment properties.
-15 -15
The news isn’t quite as good for the region’s apple growers,
-20 -20
who are likely to see lower incomes over the coming year Source: Stats NZ, Westpac
because of a smaller apple crop and flat to falling prices. -25 -25
2012 2013 2014 2015 2016 2018 2019 2020
09 | June 2021 Regional RoundupNorthland.
Current situation. House prices though are expected to stabilise over coming
quarters given recent changes to the tax treatment of
The Northland economy continues to perform strongly investment properties and the recent slowdown in sales
because of a strong performance from its primary industry, volumes in the region. By contrast, residential construction
activity in the region should strengthen further, given the
Indeed, the region’s farmers will have been buoyed by a large amount of work still in the pipeline.
25% increase in the milk price since the beginning of the
year, reflecting surging economic growth in China, as well A strong economic performance is likely to translate into
as a recent turnaround in meat prices, which will also have more jobs with demand for labour having ticked up recently.
boosted farmgate incomes. Forestry owners in the region That in turn should feed into spending, which suggests a
are also likely to have benefitted from strengthening demand firming in retail activity.
in China for logs and higher export prices. Log prices have
jumped 20% over the past six months.
Figure 1: House prices and sales volumes
The region’s horticultural sector has also performed well, with Number Monthly % change
kiwifruit exports finding favour in overseas markets. Growers 320 4
continue to benefit from elevated prices, although worker 240 3
shortages remain a concern for some. 160 2
80 1
Meanwhile, residential construction activity in the region is 0 0
red hot. Indeed, building consents have skyrocketed over the -80 -1
past year, and are currently running at record levels.
-160 -2
Prices (RHS)
-240 -3
A strongly performing housing market has also contributed to Sales (LHS)
a booming local economy. That said, monthly price gains are -320 -4
Source: REINZ, Westpac
starting to soften, while sales volumes have come off and are -400 -5
2017 2018 2019 2020 2021
now lower than they were pre-Covid-19.
A strong economic performance has also contributed to a big Figure 2: Residential building consents
pickup in demand for labour and that’s contributed to falling
unemployment in the region. That in turn has supported Number Number
400 400
consumer spending, with retail sales significantly up on the
same time last year. 350 350
300 300
Outlook. 250 250
200 200
Northland is set for a strong year and although the pace is
150 150
likely to slow, we are picking it to retain its position as one of
this country’s top performing regions. 100 100
50 50
Source: Stats NZ
Indeed, the region’s sheep, beef and dairy farmers stand to 0 0
benefit from rising farmgate prices. Prime meat prices are 2013 2014 2015 2016 2017 2018 2019 2020 2021
set to accelerate over the course of the year as the Covid-19
vaccine rollout gathers pace in the US, Europe and the UK, and
people head back to the restaurants. That should translate Figure 3: Unemployment rate
into higher farmgate incomes. % %
12 12
Similarly, we expect growers of horticultural products in this
10 10
major growing region to continue to benefit from a larger
kiwifruit harvest and healthy prices. That should translate into 8 8
still elevated incomes for the region’s orchardists.
6 6
The outlook for the region’s big forestry sector remains
4 4
positive with a fast-growing Chinese economy expected to be
the key driver of log exports out of the region over the coming 2 2
year. Log prices could get a further leg up from a drop in Source: Stats NZ, Westpac
transport costs over the coming year once capacity shortages 0 0
2008 2010 2012 2014 2016 2018 2020
in shipping are resolved and supply chains normalise.
10 | June 2021 Regional RoundupOtago.
Current situation. rollout gathers pace in the US, Europe and the UK, and people
head back to the restaurants.
The Otago region is doing it tough. Economic activity
continues to be heavily affected by the closure of Similarly, growers in the province should also benefit from
New Zealand’s borders. strong demand and still elevated prices for horticultural
products in key exports. A high yielding grape harvest bodes
Indeed, the loss of visitor arrivals and international students well for wine production over the coming year. The region’s
from abroad has been particularly disruptive for the many winemakers are also likely to benefit from stronger export
businesses operating in the region’s services sector. That demand, particularly in the US market.
said, a recently announced $100m package of investments,
focusing on reinvigorating tourism in the South Island, will Meanwhile, house prices in the region are expected to
have gone down well in this beleaguered region. stabilise over the next year given changes to the tax treatment
of investment properties and slowing sales volumes. That
The region will also have been given a lift by the performance said, there is potential for the housing market in Otago to do
of agriculture. The region’s farmers will have been buoyed by better than in other regions given relative price gains over the
a 25% increase in the milk price since the beginning of the past year. The Queenstown Lakes District may also benefit
year, reflecting surging economic growth in China, as well from being more reliant on overseas money rather than
as a recent turnaround in meat prices, which will also have local investors.
boosted farmgate incomes.
Residential construction activity is also likely to plateau given
Ditto for the region’s summer fruits, such as grapes used the pace of building consent approvals in the region.
for winemaking, which unlike other producing regions, has
experienced conducive weather conditions, resulting in a On balance, we think that a better economic outlook is
good yield. unlikely to be reflected in a substantive improvement in the
region’s labour market. Indeed, the key driver for consumer
Regional manufacturing activity has also picked up. Exports spending is much more likely to be still rising house prices,
have been a key driver with manufacturers benefitting from which we expect to do relatively well over the coming year.
improved global economic growth. Converting the hillside
works in Dunedin into a rail rolling stock assembly plant will
have gone down well. Figure 1: Tourism electronic card spending
$ million $ million
However, in contrast to other regions, residential construction 200 140
activity in Otago has started to flatten off, with building 180 2018 2019 2020 2021 120
consent approvals back to levels last seen in 2018. That said, 160
100
building consent approvals in the Queenstown-Lakes district 140
increased sharply earlier this year. 120 80
100
60
Spending also remains under the cosh despite rising house 80
prices, with retail sales in deep negative territory. The region’s 60 40
housing market has performed reasonably well, although with 40
20
confidence in the region at a low ebb, price gains have been 20 Source: MBIE
significantly lower than those achieved in other regions. 0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Outlook.
Figure 2: House prices and sales volumes
Economic activity in Otago is expected to show some
Number Monthly % change
improvement over the coming year. However, it will 500 8
continue to lag other regions because of its exposure to 400 6
international tourism. 300
4
200
That said, Otago is one of the few regions in the country 100 2
that stands to really benefit from the recently formed travel 0 0
bubble with Australia, especially with the winter skiing season -100 -2
now upon us. -200 Prices (RHS) Sales (LHS)
-4
-300
The region’s sheep and beef farmers also stand to benefit -400 -6
from rising farmgate prices. Prime meat prices are set to -500
Source: REINZ, Westpac
-8
accelerate over the course of the year as the Covid-19 vaccine 2017 2018 2019 2020 2021
11 | June 2021 Regional RoundupSouthland.
Current situation. black over the coming year as rising global demand underpins
the price for high quality aluminium.
Economic activity in Southland has firmed over recent
quarters, with activity across several key sectors showing The region’s also stands to benefit more than most from the
an improvement. recent opening of the travel bubble with Australia. However,
with the gradual lifting of border restrictions on visitor arrivals
Indeed, residential construction activity in the region has from other countries only likely to start sometime in 2022, the
been running hot. Supported by low interest rates and return to heady pre-Covid-19 days remains a long-way off.
strong house price gains, consent issuance in the region has
been building a head of steam and is currently running at Meanwhile, house prices in the region should stabilise in
record levels. coming quarters given recent changes to the tax treatment of
investment properties. By contrast, residential construction
Dairy has also done well. Farmers in this big dairy producing activity should strengthen over the coming year, with a large
region will have been buoyed by a 25% increase in milk prices amount of work still in the pipeline.
since the beginning of the year, reflecting surging economic
growth in China, as well as a recent turnaround in farmgate Improving economic fortunes should translate into more jobs
meat prices. Healthy price levels will have supported and with demand for labour having ticked up recently, that is
farmgate incomes in the region. likely to mean a further drop in the jobless rate. That in turn
should feed into consumer spending, implying better times
Meanwhile, the region’s manufacturing sector has picked ahead for the region’s retailers.
up. Exports have been a key driver of manufacturing activity,
with the region’s largest employer, the Tiwai Point aluminium
smelter benefitting from a recovery in global economic Figure 1: Residential building consents
fortunes. Although uncertainties remain, greater clarity on the Number Number
smelter’s future will have increased confidence in the region. 120 120
100 100
That said, the loss of international visitor arrivals to this
tourism dependent region has been felt, especially during the 80 80
peak summer months, and remains a big drag on economic
activity in the region. 60 60
40 40
Meanwhile, the region’s housing market has done well,
although price gains have not been quite as impressive as in 20 20
other regions. Source: Stats NZ
0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Firmer activity is likely to have contributed to a recent pickup
in demand for labour. Unemployment though has ticked
higher, and that may help explain why retail sales growth in Figure 2: House prices and sales volumes
the region remains in negative territory.
Number Monthly % change
350 7
Outlook. 300 Prices (RHS) Sales (LHS) 6
250 5
We expect economic activity in Southland to strengthen 200 4
over the coming year. However, the region will continue 150 3
to underperform compared to New Zealand’s top 100 2
performing regions, mainly because of its reliance on 50 1
international tourism. 0 0
-50 -1
Indeed, the region’s sheep, beef and dairy farmers stand to -100 -2
Source: REINZ, Westpac
benefit from rising farmgate prices. Prime meat prices are -150 -3
set to accelerate over the course of the year as the Covid-19 2017 2018 2019 2020 2021
vaccine rollout gathers pace in the US, Europe and the UK,
and people head back to the restaurants. That, in turn, should
support farmgate incomes in the region.
The big Tiwai point smelter should also get a lift from still
rising commodity prices. After posting a loss for the 2020/21
year, the region’s largest employers are likely to move into the
12 | June 2021 Regional RoundupTaranaki/Manawatu-Whanganui.
Current situation. That said, residential construction activity in the region is
likely to strengthen given a recent acceleration in building
The Taranaki/Manawatu-Whanganui region is performing consent applications and the volume of work already in
strongly because of favourable conditions in agriculture, the pipeline.
forestry, construction, and more recently, the energy sector.
Strengthening activity should mean more jobs for the region.
Indeed, the region’s forestry sector continues to benefit from That in turn should feed into more spending, bringing further
strong Chinese demand, with export log prices having jumped cheer to the region’s retailers.
20% over the past six months. Similarly, farmers in region will
have been buoyed by a 25% increase in milk prices since the
beginning of the year. Healthy price levels have supported Figure 1: Residential building consents
farmgate incomes in the region. Number Number
700 700
Meanwhile, residential construction activity in the region is 600 600
red hot. Supported by low interest rates and strong house
price gains, consent issuance in the province has accelerated 500 500
in recent months and is currently running at record levels. 400 400
300 300
A rampant housing market has also contributed to the strong
local economy, outperforming those in most other regions. 200 200
100 100
Taranaki’s oil and gas sector has also done better with the Source: Stats NZ
global economic recovery pushing up energy prices. 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Not so good was news that Methanex had put its Waitara
Valley methanol plant on the go slow after failing to secure Figure 2: PMI/PSI – Central
adequate gas supplies.
Index Index
70 70
Stronger economic activity in the region has underpinned
65 65
an improvement in labour market conditions. Online job
60 60
vacancies have skyrocketed recently. That together with a
55 55
strong housing market performance is likely to explain why
50 50
consumer spending in the region has strengthened recently.
45 45
40 40
Outlook. 35 PMI - Central PSI - Central 35
30 30
We expect economic activity in this region is likely to continue 25 25
Source: Business New Zealand
to strengthen over the coming year. 20 20
2017 2018 2019 2020 2021
For one thing, the region’s energy sector is likely to benefit
from elevated crude oil prices. The region is also likely to
benefit from sustained demand for methanol as global Figure 3: House prices and sales volumes
economies rebuild post Covid and natural gas-based Number Monthly % change
methanol becomes increasingly regarded as a cleaner 800 12
700
burning fuel. 10
600
500 8
The region’s dairy farmers stand to benefit from high milk 400 6
prices. Ditto for forestry, with log prices likely get a further 300 4
leg up from a drop in transport costs over the coming year as 200
100 2
capacity shortages in shipping are finally resolved and supply
0 0
chains normalise.
-100 -2
-200 Prices (RHS) Sales (LHS)
Meanwhile, house prices in the region are expected to -300 Source: REINZ, Westpac
-4
stabilise over the coming year, mainly because of changes -400 -6
2017 2018 2019 2020 2021
made to the tax treatment of investment properties. Slowing
sales volumes and weaker monthly price gains also suggest
that house prices in the region will start to flatten off.
13 | June 2021 Regional RoundupWaikato.
Current situation. House prices though should stabilise in coming quarters
given recently announced changes to the tax treatment of
Economic activity in the Waikato has strengthened and is investment properties.
becoming more broad-based with big contributions coming
from the primary, construction and manufacturing sectors. Strengthening activity in the region should mean more
jobs. With demand for labour having increased recently,
Indeed, farmers in this big dairy producing region will have the likelihood is that the labour market will tighten over the
been buoyed by a 25% increase in the milk price since the coming year. That in turn should feed into more consumer
beginning of the year, reflecting surging economic growth in spending, bringing further cheer to the region’s retailers.
China, as well as a recent turnaround in meat prices. Healthy
price levels have supported farmgate incomes in the region.
Figure 1: Residential building consents
At the same time, the region’s forestry sector continues to Number Number
benefit from strong Chinese demand. 1,400 1,400
1,200 1,200
Meanwhile, residential construction activity in the region is
red hot. Supported by low interest rates and strong house 1,000 1,000
price gains, consent issuance in the province has accelerated 800 800
in recent months and is currently running at record levels.
600 600
A ramp up in construction in turn has benefitted 400 400
manufacturing activity in the region. Firms are reporting
200 200
increased trading activity and fast filling order books. Source: Stats NZ
Manufactured exports are also benefitting from the global 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021
economic recovery. News that a proposed billion dollar
industrial and housing development at Ōhinewai has been
given the green light will have been broadly welcomed. Figure 2: PMI/PSI - Northern
A strongly performing housing market has also contributed to Index Index
70 70
the region’s strong economic performance. That in turn has
contributed to a pickup in spending, with retail sales sharply 60 60
up on last year.
50 50
Outlook. 40 40
PMI - Northern PSI - Northern
We expect the broad-based expansion underway in Waikato 30 30
to gain further momentum over the coming year, with most
20 20
sectors expected to make positive contributions. That should
Source: Business New Zealand
help it close the performance gap with high performing 10 10
rural regions. 2017 2018 2019 2020 2021
Indeed, with a massive amount of work in the pipeline,
residential construction activity is likely to be a strong Figure 3: House prices and sales volumes
contributor over the coming year. News that Hamilton City Number Monthly % change
Council is struggling to keep up with consent applications is 1250 5
consistent with this view. 1000
Prices (RHS) Sales (LHS)
4
The region’s meat and dairy farmers also stand to benefit from 750 3
higher prices. Prime meat prices are set to accelerate over 500 2
the course of the year as the Covid-19 vaccine rollout gathers
250 1
pace in the US, Europe and the UK, and people head back to
the restaurants. 0 0
-250 -1
Meanwhile, the region’s manufacturers are well set to benefit Source: REINZ, Westpac
from an expected pickup in residential construction activity. -500 -2
2017 2018 2019 2020 2021
Exporting manufacturers are also well positioned to take
advantage of a further improvement in global economic
fortunes and the normalisation of supply chains.
14 | June 2021 Regional RoundupWellington.
Current situation. recent months, suggesting that a predicted slowdown in
the housing market may take a little longer than elsewhere.
Economic activity in Wellington continues to improve, A weaker housing market will act as a drag on consumer
supported by an expansion of the public sector and raised spending in the region.
construction activity.
Strengthening activity in the region should mean more jobs,
Indeed, activity in the capital is being supported by more which in turn should feed into more spending. While that is
employment in the public sector, which is being boosted by likely to reinforce an already established trend towards more
the Government’s more hands-on approach to the economy. online shopping, that should still bring more cheer to the
region’s retailers.
An expanding public sector in turn has meant more work for
supporting services in the region. That includes a range of
business and professional services, including ICT and media. Figure 1: Residential building constraints
Number Number
Meanwhile, residential construction activity in the region is 1,200 1,200
gathering momentum. Supported by low interest rates and
1,000 1,000
strong house price gains, consent issuance in the region,
particularly for high density homes, has accelerated over the 800 800
past year or so and is now running at elevated levels.
600 600
A rampant local housing market has also contributed to the
400 400
economic strength in the region. Indeed, house prices have
easily outperformed those in other major urban centres, 200 200
and although monthly gains have slowed recently, they Source: Stats NZ
remain strong. 0 0
2013 2015 2017 2019 2021
More employment and a stronger housing market are likely to
have provided some support to consumer spending. Indeed, Figure 2: House prices and sales volumes
retail sales are up on a year ago and card spending is back to
pre-Covid-19 levels. Number Monthly % change
1000 5
That said, with working from home becoming the norm in the 800 4
public sector, many retailers in the capital have struggled, 600 3
and some have closed, as shopping has moved online. 400 2
200 1
0 0
Outlook.
-200 -1
We expect economic activity in Wellington’s will gain further -400 Prices (RHS) Sales (LHS) -2
momentum over the coming year. -600 -3
Source: REINZ, Westpac
-800 -4
Indeed, activity levels are likely to be boosted by the 2017 2018 2019 2020 2021
expanding role of the public sector and the centralisation of
functions in areas such as healthcare. That is likely to mean
more demand for public servants in the capital, which in turn Figure 3: Retail sales
implies more work for firms that supply goods and services to APC APC
the sector. 10 10
5 5
With a healthy level of work still in the pipeline, residential
construction activity is also likely to be strong over the 0 0
coming year. That should eat into a long-standing housing
shortage in the region. Civil activity should also pick up as the -5 -5
authorities focus on tackling well publicised infrastructural
-10 -10
issues in the capital.
-15 -15
Meanwhile, house prices in the region are expected to Source: Stats NZ, Westpac
stabilise over the coming year. That’s likely to be driven by -20 -20
2012 2013 2014 2015 2016 2018 2019 2020
changes to the tax treatment of investment property. In
contrast to other regions, sales volumes have picked up in
15 | June 2021 Regional RoundupContact the Westpac economics team.
Michael Gordon, Acting Chief Economist Paul Clark, Industry Economist
+64 9 336 5670 +64 9 336 5656
Satish Ranchhod, Senior Economist Gregorius Steven, Economist
+64 9 336 5668 +64 9 367 3978
Nathan Penny, Senior Agri Economist Any questions email:
+64 9 348 9114 economics@westpac.co.nz
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